Caine v Lumley General Insurance Limited

CATCHWORDS: INSURANCE - construction - commercial business policy for caravan park - caravans permanent or semi-permanent structures to which a tropical roof and annex was attached - damage to caravans, annexes and tropical roofs during storm which included wind, rain and hail - whether reference to "caravans" in exclusion clause included annexes and tropical roofs - whether limits of indemnity under exclusion clause applied to "extra cost of reinstatement" clause - whether limit of indemnity under exclusion clause applied to "additional cover" clause - CAUSATION - proximate cause - whether hail proximate cause of damage - CONTRACTS - release - whether insurer released from liability in respect of costs not in contemplation at time release executed..

Residential Parks Act 1998 LEGISLATION CITED: Insurance Contracts Act 1984 (Cth) Local Government (Caravan Parks, Camping Grounds and Moveable Dwellings) Regulation 1995

Caine & Anor v Lumley General Insurance Limited [2006] NSWSC 337 City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 Cloutte v Storey [1911] 1 Ch 18 Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 81; (1986) 161 CLR 500 General Accident Insurance Asia Ltd v Sakr [2001] NSWCA 402 Grant v John Grant & Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112 HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601 Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 CASES CITED: McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; (2007) 157 FCR 402 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 PricewaterhouseCoopers Legal v Perpetual Trustees Victoria Limited [2007] NSWCA 271 Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541 Rich v CGU Insurance Limited [2005] HCA 16; (2005) 79 ALJR 856 State Government Insurance Commission v Lane (1997) 68 SASR 257 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 Trickett v Queensland Insurance Co Ltd [1936] AC 159 Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] QB 57 Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522

TEXTS CITED: Kelly and Ball, Principles of Insurance Law, LexisNexis

Robert Lewis Caine - First Appellant PARTIES: Pauline Joy Byfield - Second Appellant Lumley General Insurance Limited - Respondent

COUNSEL: Mr R W Seton SC - Appellants Mr J C Kelly SC - Respondent

SOLICITORS: Barry F Cosier & Associates- Appellants Piper Alderman - Respondent

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50033 of 2004

LOWER COURT MEDIUM NEUTRAL CITATION: [2006] NSWCA 337

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40307/06 SC 50033/04

MASON P McCOLL JA McCLELLAN CJ at CL

Wednesday 6 February 2008 Robert Lewis Caine v Lumley General Insurance Limited Judgment 1 MASON P: I agree with McColl JA.

2 McCOLL JA: Robert Lewis Caine and Pauline Joy Byfield appeal from a decision of Einstein J rejecting their claim for monies said to be due under a Commercial Business Policy commencing on 19 October 2001 issued by Lumley General Insurance Limited: Robert Lewis Caine v Lumley General Insurance Limited [2006] NSWSC 337.

Statement of the case 3 The appellants own a real estate and a caravan park business known as "Royal Pacific Tourist Retreat" at 109 Chinderah Road, Chinderah. Chinderah is on the far north coast of New South Wales close to the Queensland border. The caravan park is in a flood prone area. 4 The business includes 34 permanent caravan sites with vans. Twenty six of the caravans are owned by the appellants. Each caravan had an annex, four of which were of aluminium foam sandwich construction, five were vinyl, while the balance were constructed from a combination of three materials. Each annex sat on a concrete slab and adjoined a caravan, to which it was connected by a roofing screw in a manner which enabled thoroughfare between the two as if they were one unit. The caravans had solid tropical roofs above them. A tropical roof is a fixed structure erected just above the roof of a caravan, to which it is bolted. It served two functions: it reduced both heat penetration to the caravan and, too, the likelihood of the caravan being damaged by hail and other weather events. Although the tropical roofs slightly overhung the annexes, they were independent of them.

5 Work to the annexes or roofs of the caravans requires the approval of the Tweed Shire Council, which has adopted a policy that requires, inter alia, a Development Application to be lodged, an engineer's certificate to be provided and, in the case of annexes, that the floor height be raised to a level designed to avoid flooding: primary judgment (at [6]). 6 On January 16, 2002, the caravan park was struck by a severe storm, including hail and torrential rain, which caused damage to the house located on the park premises as well as to 25 of the caravans and tropical roofs and to 24 of the annexes: primary judgment (at [8]). 7 The appellants claimed under the Policy. Pursuant to the Basis of Settlement clause in the Policy (cl D) they were entitled to be paid the reinstatement value of the property damaged. They estimated the costs of reinstating the caravans alone at $97,500, the costs of reinstating the tropical roofs at $83,031 and the annexes at $477,903. The respondent paid them $100,000 in respect of the damage to the caravans (which it asserted included the annexes and tropical roofs), $35,000 in respect of business interruption; and $700 in respect of damage to the residence but said that was the limit of its liability under the Policy. 8 It is the payment of $100,000 which gives rise to the substantial controversies which arose at trial and in this Court. They were whether or not the reference in the Policy to "caravans" included the annexes and tropical roofs and, if it did, whether the damage to the caravans was caused by hail thus attracting an exclusion clause, E15, which capped recovery at $100,000. The primary judge found in the respondent's favour on this issue. The other substantial issue was whether, assuming E15 applied, extra costs of reinstating the caravans of approximately $72,000 which arose as a result of Council requirements imposed pursuant to the policy earlier referred to, were capped by the $100,000 or payable in addition to that sum pursuant to cl D5. The primary judge did not directly resolve that issue. 9 For the reasons which follow I am of the view that the primary judge correctly resolved that the reference to "caravans" included the tropical roofs and annexes and that the proximate cause of the damage was hail so cl E15 applied to cap recovery at $100,000. I am also of the view that the D5 costs are recoverable in addition to the $100,000. The issues 10 The primary judge identified the issues as appearing to include (primary judgment at [13]):

"(a) Whether the structures in question (including annexes and tropical roofs) are parts of 'caravans' within the meaning of the policy, or are parts of items of aluminium foam sandwich construction.

(b) Whether the proximate cause of the loss or damage to the structures in question, or a proximate cause, was hail.

(c) Whether the limits of indemnity under the policy, including the $100,000 stipulated in clause E15 of the policy, apply to any Extra Cost of Reinstatement under clause D5.

(c1) What limits, if any, apply in relation to Additional Costs under clause C and/or annexes and tropical roofs, if they are not caravans

(d) Alternatively, and if yes to (a) but no to (b): i. whether any liability to indemnify in relation to loss and damage to caravans as a result of the events of 16 January 2002 was released and discharged by operation of the Release dated 2 October 2002. ii. Has the insurer waived [or become subject to an estoppel or have the parties so conducted themselves as to abandon an entitlement to rely on the release] iii. Alternatively, whether there is a limit of indemnity in relation to damage to caravans by reason of any cause of $192,000.

(e) Alternatively, if no to (a), whether the structures in question are 'Other Structures' within the meaning of the policy and are subject to a limit of indemnity of $15,000.

(f) Alternatively, whether the plaintiffs were under-insured and average applies and if so how does the averaging clause operate." 11 Issues (d)(ii) and (iii) and issue (e) were not raised on appeal. 12 The quantum of the appellants' claim differed depending upon how each of the issues was resolved. The appellants quantified their claim before the primary judge as follows (primary judgment (at [11])): "If they were entitled to recover to the full extent of their claim, they sought: (a) $95,700 for caravans (b) $85,031.25 for tropical roofs (c) $477,903.17 for annexes (d) $53,760 for extra costs of raising the annex floors

(a) $95,700 for caravans (b) $348,087 in respect of tropical roofs and annexes (c) $72,808 in respect of the extra costs of reinstating the annexes and tropical roofs so as to comply with Council requirements (ie DA fee and engineering certificates for both the annexes and the tropical roofs and the extra cost of compliance of $2240 for each annex floor)

iii. If tropical roofs and annexes were held to be 'caravans' for the purposes of the policy, they sought:

(a) $95,700 for caravans, including annexes and tropical roofs (b) $72,808 in respect of the extra costs of reinstating the annexes and tropical roofs so as to comply with Council requirements (i.e. DA fee and engineering certificates for both the annexes and the tropical roofs and the extra cost of compliance of $2240 for each annex floor)." 13 The appellants also claimed that it was unreasonable for the respondent not to make any of the above payments at the latest by January 2003. They sought to recover interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) on whatever sum was allowed by the Court at 11% per annum from 16 January 2003 to the date of judgment. 14 The appellants quantified their claim by reference to the following facts to which the parties agreed for the purposes of the proceedings: primary judgment (at [14]): "i. As at the date of commencement of the period of insurance, namely 19 October 2001 ('Commencement Date'), the plaintiffs owned 26 caravans on-site at 109 Chinderah Road, Chinderah, ii. Each of the caravans referred to in paragraph 1 had an annex adjoining it to one side and also a structure built over it known as a 'tropical roof'. iii. As at the Commencement Date the cost of replacing each tropical roof was $4,534.75. iv. As at the Commencement Date the cost of replacing each of the timber-frame/vinyl annexes to its existing specification was $17,382.50. v. As at the Commencement Date the cost of replacing each of the other types of annexes to its existing specification was $20,449.93. vi. As at the Commencement Date, there were 26 tropical roofs. vii. As at the Commencement Date, there were 5 timber-frame/vinyl annexes. viii. As at the Commencement Date, there were 21 other annexes. ix. On 16 January 2002, 25 tropical roofs were damaged by hail. x. On 16 January 2002, 5 timber-framed/vinyl annexes were damaged by storm including hail and torrential rain. xi. On 16 January 2002, 21 of the other annexes were damaged by storm including hail and torrential rain. xii. Damage was caused to the caravans by storm including hail and torrential rain resulting in the need to repair or replace them at the cost per caravan as set out in the first column of amounts in the attached schedule marked 'A'. xiii. Damage was caused to the tropical roofs by hail, resulting in the need to repair or replace them at the cost per tropical roof as set out in the second column of amounts in the attached schedule marked 'A'. xiv. Damage was caused to the annexes at each of the caravan sites by storm including hail and torrential rain resulting in the need to repair or replace them at the cost per annexe as set out in the third column of amounts in the schedule 'A'. xv. Included in the costs set out in the second and third columns of amounts in schedule 'A' are the cost of an engineer's certificate of compliance and the council's D.A. fee for each tropical roof and each annexe. xvi. The extra cost of reinstatement of each annexe necessarily to be incurred by the plaintiffs to comply with the requirements of any statute or regulation or of any municipal or statutory authority would include the amounts set out in the fourth column of amounts in schedule 'A' in respect of each site number set out therein. xvii. The figure of $2,240 as set out in the fourth column of amounts in schedule 'A' does not include the cost of engineer's certificates of compliance or Development Application fees and is additional to the amounts set out in the 3rd column of amounts. xviii. The cost of obtaining an engineer's certificate of compliance in respect of each rebuilt or repaired tropical roof or annexe is $287. xix. The cost of lodging a Development Application with the local council in respect of the rebuilding or repair of each tropical roof or annexe is $101.75. xx. It will be necessary for the plaintiffs to obtain an engineer's certificate of compliance in respect of 25 of the tropical roofs. xxi. It will be necessary for the plaintiffs to obtain an engineer's certificate of compliance in respect of 24 of the annexes. xxii. It will be necessary for the plaintiffs to lodge a Development Application in respect of 25 tropical roofs. xxiii. It will be necessary for the plaintiffs to lodge a Development Application in respect of 24 annexes. xxiv. The defendant paid the plaintiffs $700 on 14 July 2005 in satisfaction of the remainder of their claim on the policy relating to the residential premises. xxv. The defendant paid to the plaintiffs $100,000 on 7 February 2003 in respect of damage to caravans. xxvi. The defendant paid $35,000 to the plaintiffs on 7 February 2003 in respect of business interruption."

Schedule A was not reproduced in the primary judgment. Nothing turns on it for present purposes as the respondent did not dispute in this Court the quantification of the elements of the claim. The Policy 15 Resolution of the issues turns on the construction of the Policy, which was a standard form document and the Schedule to it, which was a bespoke document. The relevant parts of the Policy were the section headed "Important Information", which was followed by "General Definitions", then "General Conditions and Exclusions" which applied to all sections, then twelve sections, each of which related to a separate head of cover. Section 1 dealt with Property Damage. It was common ground that the Schedule formed part of the Policy for the purposes of construction.

16 In the section headed "Important Information" the respondent agreed to: "… indemnify [the appellants], subject to the terms and conditions of the Policy, and the specified Sections in the Schedule of the Policy in respect of loss, damage or liability occurring during the Period of Insurance. … Provided that Our liability will not exceed the Sum Insured nor any specific sub-limits contained in the Schedule or any specified Section of the Policy covering that particular loss, damage or liability." (the "general insuring clause")

17 In the section headed "General Definitions" which applied to all Sections, the following appeared: " 'Schedule' means the attachment which forms part of the Policy and shows Your Policy number, together with the details of Your cover including the Sections of the Policy which apply … 'Sum(s) Insured' means the Sum Insured or amount shown in the Schedule for which You have elected to insure."

18 The Certificate of Insurance recorded that the appellants had cover for, inter alia, Material Damage (Section 1) and Business Interruption (Section 2) and that each of those sections of the Policy was subject to average. It warned this meant that if "you underinsure when you enter into this contract you may be required to bear part of the loss". The following table, which it was common ground comprised the Schedule referred to in the Policy, was set out in the Certificate of Insurance:

MATERIAL DAMAGE DECLARED ASSETS Residence 300,000.00 Amenities & Contents 30,000.00 Cabins & Contents 22,000.00 Caravans Indemnity 192,000.00 Caravans Replacement Machinery/Plant/Hose Reels/Vehicles 6,000.00 BBQ's/Pergolas/Pools/Playground 800.00 Boilers/Pressure Vessels/Washers/Dryers 6,000.00 Stock In Trade/Contents of Shop Other Structures eg. Power Heads/Poles and Office Contents 15,000.00 Demolition/Removal of Debris 83,500.00 Limit of Liability $655,300.00

SUB LIMITS Accidental Damage Limit $10,000.00 Boiler Explosion (Limit Any One Loss) $5,000.00 Roads & Underground Services $150,000.00

19 In the section of the Policy headed "General Conditions", which also applied to all Sections, cl 11, Interpretation, provided: "(a) Any word or expression which is given a specific meaning in the Policy will have that meaning wherever it may appear provided that it commences with a capital letter." 20 Clause B (the "extent of cover clause") in Section 1 (Property Damage) provided, relevantly:

… We will indemnify you against Damage occurring to Property Insured during the Period of Insurance and shall provide the additional cover referred to in Clause C up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule, but subject to: … 1. The Property Insured being… (a) at the Situation at the time that the Damage occurs… 2. the Limit(s) and Sub-Limits referred to in the Schedule; 3. the amount of the indemnity being calculated in accordance with the Basis of Settlement Clause D 4. the exclusion of certain items of property as referred to in Clause E…." 21 The following definitions appeared in Section 1, cl A: "' Property Insured ' 'means all tangible property both real and personal of every kind and description belonging to You or for Damage to which property You are legally responsible or which You have assumed responsibility to insure prior to the occurrence of any Damage, but does not include Money. Property Insured includes all such property acquired after the commencement of the Period of Insurance.' ' The Limit of Liability ' is the maximum amount We will pay for any one loss or series of losses suffered by You arising out of any one original source or cause at any one Situation, subject to any Sub-Limits of Liability and the application of any Excess. The Limits of Liability and Sub-Limits of Liability are as set out in the Schedule. (a) if more than one Limit or Sub-Limit of Liability applies, the lesser amount shall be payable.

(b) each Sub-Limit shall not increase Our liability beyond the Limit of Liability. Each of the Excesses will apply to each Sub-Limit, but will not be cumulative.

' Declared Values' are the values of Property Insured at each Situation/Gross Profit/Pay-Roll declared by You and calculated as applicable in accordance with the Basis of Settlement Clauses. You shall complete a statement of Declared Values as at the commencement of the Period of Insurance, on the acquisition of Property Insured and as at the end of the Period of Insurance. … 'Damage' (with Damaged having a corresponding meaning) means physical loss, damage or destruction." 22 Section 1, Clause C, Additional Cover, provided: C. ADDITIONAL COVER 1. If Damage to Property Insured occurs in circumstances giving rise to indemnity under Section 1 of this Policy, We will also pay the following additional costs where they are necessarily and reasonably incurred in respect of: (a) architects', surveyors' consulting engineers', legal and other fees and clerks of works salaries for estimates, plans, specifications, quantities, tenders and supervision necessarily incurred as a result of any such Damage, but not costs, fees or other expenses for preparing any claim under Section 1 of this Policy; … " 23 Section 1, clause D, Basis of Settlement, relevantly provided:

Is the cost necessary to replace, repair or rebuild the Property Insured to a condition substantially the same as but not better or more extensive than its condition when new. … 3. On buildings … and all other property … the Basis of Settlement shall be in [sic, its] Reinstatement Value and the provisions of D4 to D8 shall apply. … 5. Extra Cost of Reinstatement We will also pay the extra cost of reinstatement (including demolition or dismantling) of Property Insured which has been Damaged necessarily incurred by You to comply with the requirements of any statute or regulation or of any municipal or statutory authority, provided that:

(a) We shall not pay for any additional cost incurred in complying with any such requirement which You had been required to comply with prior to the happening of the Damage; (b) the Average/Underinsurance Clause shall not apply to any amount recoverable under this Clause D5, and any amount payable shall not be taken into account for the purpose of the application of the Average/Underinsurance Clause; (c) if the cost of reinstatement of Damaged Property Insured is less than 50% of the cost of reinstatement if such property had been totally destroyed, the indemnity under this Clause D5 shall be limited to the extra cost necessarily incurred in reinstating only that portion Damaged or the Sub-Limit of Liability stated in the Schedule, whichever is the lesser. If no Sub-Limit of Liability is stated, Our liability shall be limited to the extra cost necessarily incurred in reinstating only that portion Damaged." 24 Section 1, clause E, "Property Excluded", relevantly provided:

"Section 1 of this Policy does not cover Damage to the following property in the circumstances set out: … 11 (a) Gates, fences, retaining walls, textile awnings and blinds where caused by wind, rain water or hail.

(b) Property in the open air unless such property comprises or forms part of a permanent structure designed to function without the protection of the walls or roof where caused by wind, rain water or hail;

(c) Provided that this exclusion shall not apply to caravan and cabin annexes, and shelters built of sail material or perimeter fencing less than 10 years old where damage is caused by storm, tempest, wind, rain water or hail. (i) Special Excess-$1500 per textile or fabric annex or sail material shelter and $5,000 in the aggregate being the maximum excess payable by the Park where damage is caused by storm, tempest, wind, rainwater or hail; … 14 Caravans, Manufactured Homes, Relocatable Homes, Park Homes, and Cabins where caused by wind, rainwater, storm or tempest, where there is a statutory requirement for the Manufacturer to cyclone rate the structure or for any special cyclone rating Anchorage, unless such requirement is adhered to… ;

15 Caravans and all aluminium foam sandwich construction where caused by hail. Unless the hail penetrates the entire thickness of the material damaged, causing water to enter. Limit of Liability $100,000 any one year; 16 Docks, Wharfs and Piers where caused by storm and/or tempest and/or rainwater and/or wind and/or hail and/or accidental damage. 25 Section 1, clause G2, Average/Underinsurance, provided: "2. Average/Underinsurance

(a) You are required to insure for full value calculated in accordance with the Basis of Settlement Clause as applicable at the commencement of the Period of Insurance and in relation to any Property Insured acquired after the commencement of the Period of Insurance as at the time of acquisition of that property. (b) In the event of a claim, the moneys otherwise payable under Section 1 of this Policy shall be the proportion that Your declaration at the time of the commencement of the Period of Insurance of the value of all Property Insured at the Situation to which the Damaged item of items belong bears to 85% of the value of all such property as at the time of the commencement of the Period of Insurance calculated in accordance with the Basis of Settlement Clause. (c) The Condition G2.shall not apply if the amount of the Damage does not exceed 5% of the amount of Your declaration of value for that Situation.

(d) For the purpose of the application of this Condition G2., Your declared values at any Situation shall not include any allowance for the Extra Cost of Reinstatement referred to in Clause D5, or for the costs and expenses referred to in the Additional Cover provided in Clauses C1.(b), C1.(c) and C2."

The judgment below 26 The primary judge summarised the appellants' contentions concerning the Policy as follows: "33 The plaintiff contends that:

i. the definition of 'Property Insured' is wide enough to include, but is not limited to, the items listed in the Schedule as Declared Assets.

ii. there is nothing in the policy to indicate that Property Insured is limited to the Declared Assets;

iii. if the policy was intended, in relation to Material Damage, to be limited to the Declared Assets, the definition of Property Insured could have made reference to the items specified in the schedule;

v. the policy insures 'Property Insured' and not 'Declared Assets' or 'the items in the Schedule';

vi. the purpose of the Declared Assets being listed with a value, it is submitted, is to enable the calculation of a Limit of Liability;

vii. that figure (the Limit of Liability) also becomes relevant if the averaging clause is to apply, in the event of underinsurance;

viii. accordingly, it is submitted from the insuring Clause B, Extent of Cover, that any item which falls within the definition of Property Insured, if damaged, will be the subject of indemnity."

and "37 The plaintiff contends that the following matters follow:

i. where items falling within the definition of Property Insured are damaged, indemnity is provided under the policy by reference to the costs necessary to replace, repair or rebuild the item to a condition substantially the same as but not better or more extensive than its condition when new.

ii. The parties have agreed as to what the appropriate costs are for the caravans, annexes and tropical roofs.

iii. pursuant to Clause B Extent of Cover, the insurer is liable to indemnify the plaintiffs in respect of damage to the caravans, the annexes and the tropical roofs.

iv. The extent of indemnity is calculated by reference to the cost of repair or replacement, which has been agreed between the parties.

v. It should also be noted, from the insuring Clause B, that in addition to indemnity for damage for property insured, the insurer has agreed to 'provide the additional cover referred to in Clause C up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the schedule' (emphasis in original)." 27 The respondent resisted the claim on the basis that (primary judgment (at [15] - [17])): "(1) annexes and tropical roofs are parts of 'caravans', within the meaning of the policy;

(2) the proximate cause of the damage to the caravans, or a proximate cause, was 'hail'; and

(3) the policy limits apply to the whole claim, including the claim for the extra cost of reinstatement.

(3) the plaintiffs are said to have been paid their full entitlement under the policy." 28 The respondent raised three alternative arguments which the primary judge summarised as follows: "17 In the alternative, the defendant contends that if annexes and tropical roofs are not parts of caravans within the meaning of the policy, they are 'Other Structures' within the meaning of the schedule to the Policy, where 'Other Structures' have a limit and declared value of $15,000. Fundamentally, that is said to mean [even if the plaintiffs are correct in the way they now seek to put their case] that they were under-insured in relation to 'Other Structures' and the averaging provisions contained in clause G2 of the policy apply.

18 In the event that the court considers that the annexes and tropical roofs are parts of caravans, but the proximate cause of damage was not hail, it would be necessary to consider whether any liability in respect of caravans was released and discharged by operation of the release; if not, whether there was a limit of indemnity of $192,000 in relation to caravans, whatever the cause of the loss or damage to the caravans; and, if not, how the averaging provisions apply.

19 In the event that the court found that the annexes and tropical roofs are not parts of caravans, it is common ground that a number of the annexes were of aluminium foam sandwich construction: hence the defendant contends that: (1) those annexes and tropical roofs were damaged by hail and attract the $100,000 limit in clause E5 [sic, E15];

(2) the remaining annexes and tropical roofs are subject to a limit of $15,000; and

(3) in the alternative, average applies." 29 The primary judge accepted the respondent's primary submissions. He did not consider the alternative submissions.

30 In order to determine the issue he had identified as (c1), it was necessary for the primary judge to determine the significance of the enumerated values under the heading "Declared Assets" in the Schedule and, in particular, whether, as the respondent argued, each value constituted a Limit or Sub-Limit of Liability. The alternative construction, for which the appellants contended, was that the only Limit of Liability was $655,300, being the total of the enumerated values which appeared opposite the words "Limit of Liability" in the Schedule. 31 The primary judge determined this issue in the respondent's favour. He held: " Do the 'Declared Assets' amounts for each item specified under Material Damage constitute limits or sub-limits

40 Whether the figures of $192,000 and $15,000 in the schedule operate as 'limits' as well as 'declared values' depends upon the proper construction of the policy as a whole, including the schedule.

41 In my view, the Declared Asset amounts for the items specified in the schedule do constitute limits/sub limits. This is clear from the use in Section 1 clause B, of the phrase 'up to the value of the Limits (s) and Sub-limit (s) of liability referred to in the schedule': cf line 4 of B; B 2. By these references this clause delineates the 'Extent of Cover'.

42 Turning to the schedule, it is apparent that the figure of $655,300 is the total of a number of other figures, including the $192,000 in respect of Caravans Indemnity and the $15,000 in respect of 'Other Structures' and it is said to be 'Limit of Indemnity'.

43 I accept as of substance the submission by the insurer, that the description of the total figure of $655,300 as the 'Limit of Indemnity' indicates an intention that each of the constituent parts of that total are themselves limits. Clearly, the schedule could have been better expressed. Instead of 'Limit of Indemnity' it could have said 'Total of Limits of Indemnity'. However, that is not the test. The intention of the instrument is plainly to the same effect.

44 The insurer is also correct in its submission that another indicator to the same end is that the item in relation to caravans is expressed as 'Caravan Indemnity'. The presence of the word 'indemnity' points to a limit of indemnity, for if was not intended that the $192,000 be a limit, it would seem to make no sense to speak of an indemnity at all.

45 In short the proper construction of the policy is to read it as providing for 'Additional Cover' but only up to the limits and limits referred to in the schedule."

The reference to "Limit of Indemnity" in this part of his Honour's judgment was erroneous. That phrase does not appear in either the Schedule or Section 1 of the Policy. It was clearly intended to be a reference to the words "Limit of Liability" which are used. The appellant faintly suggested that this had led his Honour into error in construing the Policy. 32 The appellant accepts the finding in paragraph [45] for the purposes of its claim under cl C, Additional Cover, but contends the primary judge did not apply it, because in dealing with this issue he applied the limit of $100,000 in E15, not the limit of $655,300 in the Schedule: primary judgment (at [102]). 33 The question whether exclusion E15 applied, and to what extent, turned on whether the reference to caravans in that clause included the annexes and tropical roofs, and whether the damage to them was caused by hail. It was common ground that four of the annexes were of aluminium foam sandwich construction and, too, that the hail which fell during the storm "penetrate[d] the entire thickness of the material damaged, causing water to enter". 34 The primary judge held that the word "caravan[s]" in the Policy was used to describe the permanent or semi-permanent structures at the appellants' Tourist Park and that those structures incorporated a stationary van, an annex and tropical roof, together with various other appurtenances, such as frames, walls, doors, steps and slabs: primary judgment (at [48]). The "annexes" and "tropical roofs" were not separate structures: primary judgment (at [49]). He rejected as misconceived the appellants' argument that the meaning of "caravan" should be determined by reference to dictionary definitions of that word as being inconsistent with the context in which the word "caravan" was used in the Policy: primary judgment (at [50] - [52]). He found contextual support for that construction in the reference to "structure" in E14 and the exclusion of cover for damage to "Vehicles or trailers registered or licensed to travel on a public road" in E4. He also accepted that the Schedule supported that conclusion as it demonstrated the parties' intention that all materially valuable items be separately listed and ascribed a declared value. The absence of any separate listing for annexes and tropical roofs supported the conclusion that they were to be treated as part of a caravan and hence subject to the caravans' indemnity: primary judgment (at [61] - [62]).

35 The primary judge's conclusion was grounded in his findings about the nature of the structures at the appellants' premises of which he said: "52 In the context of the policy, 'Caravans' is not referring to a 'vehicle'. It is referring to a structure. The 26 'caravans' at the Royal Pacific Tourist Retreat, owned by the plaintiffs, are 'permanently installed for use by (the plaintiffs') patrons' ; each caravan has 'an annexe leading off from it and has a concrete slab floor' ; and each 'caravan' is 'connected to services such as electricity' : Affidavit of Mr Caine, 1 October 2003, para 3 (underlining added). That is consistent with the 'caravans' owned by the plaintiffs being in the nature, not of a vehicle, such as a mobile home or a trailer home which is towed behind a car, but part of a permanent or semi-permanent structure which incorporates a stationary van as part of a residential unit for use by patrons of the caravan park.

53 Clause E14 refers to 'Caravans, Manufactured Homes, Relocatable Homes, Park Homes, and Cabins' and excludes liability for damage caused by wind, rainwater, storm and tempest, where there is a statutory requirement for the manufacturer to cyclone rate 'the structure'. That points squarely to 'caravans' as a structure, as distinct from a mobile van, trailer or vehicle.

54 Consistently with an intention that 'caravans' is used in the sense of a permanent or semi-permanent structure rather than a mobile home, E4 excludes liability for damage to 'Vehicles or trailers registered or licensed to travel on a public road'.

55 Once it is appreciated that the word 'caravans' is used in the sense of a permanent or semi-permanent structure , it follows that all of the parts of and appurtenances to such a structure, including annexes and tropical roofs, should be regarded as part of that structure and within the concept of 'caravans'. They do not constitute other structures.

56 The photographs in evidence show that the caravans in question are established as permanent or semi-permanent structures. They show that the stationary vans are elevated on Besser blocks and that the annexes and tropical roofs are not separate structures; they are parts of the permanent or semi-permanent structures which constitute the residential units, along with other appurtenances, such as frames, walls, doors, steps and slabs. They are more like houses than trailers or vehicles. They are not let to be used on public roads. They are stationary and built into the site; in some cases with the wheels removed and gardens growing underneath.

57 As the insurers submitted, the evidence included the following matters: i. The stationary vans are elevated; ii. 'They nearly all sit on Besser blocks': Mr Caine, T38.31; iii. 'Some have wheels on them; some have wheels removed': T338.34; iv. the tropical roofs are 'bolted' to the van: T38.50; v. the annexes are attached to the vans by a roofing screw: T39.40; vi. it is a common feature of the caravan park that patrons grow little gardens around the vans: T39.28.

58 In the ordinary use of language, a reference to a whole includes a reference to all of its constituent parts. For example, a reference to the 'residence' at the plaintiffs' caravan park would include the kitchen, the lounge-room and all the other parts of the residence without the need to mention specific parts. If the residence had a car-port or a garage attached to the body of the house, it would go without saying that the garage, being part of the residence, was embraced by that term. In the same way, as a matter of ordinary language, it goes without saying that anything attached to the vans, including the tropical roofs and annexes, forms part of the caravans and - at least so long as they have not been dismantled - are embraced by that term.

59 Just as it would be a misuse of language to say that the wall of a caravan is not part of a caravan but 'other property' for the purpose of taking it out of a sub-limit, it is a misuse of language to describe annexes and tropical roofs as anything other than a part of the relevant whole. The parts of a whole require to be consistently treated as such." 36 The primary judge next considered the issue of the proximate cause of the damage to the caravans. 37 The appellants argued that the damage was caused by a storm which included hail and torrential rain. They submitted that clause E15 required damage by hail alone before it could apply. The primary judge rejected that submission. He held (at [84]) that the words "damaged by hail" in E15 meant "damaged by reason of hail" or "caused by hail", in the sense that hail was a proximate cause of the damage. 38 His Honour also held that the proximate cause of the damage was hail. In his view (at [88]), while E15 contemplated that there may be other causes operating concurrently with hail, such as wind to drive the hail into the damaged material and torrential rain to enter that material at the point of penetration of the entire thickness of the material, those elements did not defeat the engagement of E15. Thus he concluded (at [100]) that the Policy allowed a limited form of cover where the severity of the impact by hail caused the physical integrity of the caravans and other insured property constructed of foam sandwich materials to be breached. He found that those were the circumstances in which the caravans were damaged.

39 Finally the primary judge rejected the appellants' submission that the $100,000 limit in cl E15 did not act as a limit to the "Additional Cover" dealt with in cl C, saying (at [102]): "In the particular circumstances the $100,000 limit provided for in that exclusion is to be regarded as representing a 'specific sub limit contained in …[a] specified Section of the Policy' within the meaning of the third paragraph which follows the heading 'The Agreement'." 40 The respondent had also argued that if there were two concurrent causes of the damage to the caravans, one of which was excluded and the other not, then the exclusion applied, the consequence being that the limit in E15 was invoked. It submitted that this conclusion was supported by Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] QB 57 which it contended was still good law in light of City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 and HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601 at 610. In the light of his conclusion that hail was the proximate cause of the damage to the caravans the primary judge said it was unnecessary to deal with this contention. The respondent relies on this argument in its Notice of Contention as an alternative basis to upholding his Honour's conclusion. 41 The primary judge also did not deal with the issue of averaging/underinsurance which arose under G2 or the respondent's argument that, if its liability was not capped at $100,000, any other liability had been released by operation of a Release dated 2 October 2002.

Grounds of appeal 42 The Notice of Appeal raises the following grounds: "1 His Honour erred in failing to find that the Appellants were entitled to recover, in addition to what the Respondent had already paid, the extra costs of reinstatement pursuant to Paragraph 5 of "Clause D Basis of Settlement" of the policy and that such amount was not subject to any monetary limit. 2 His Honour failed to give adequate reasons in that he failed to make any findings as to the extra cost of reinstatement under paragraph 5 of "Clause D Basis of Settlement" of the policy despite acknowledging it as an issue for consideration. 3 His Honour erred in finding that the amounts in the policy schedule which appeared as "Declared Assets" constituted limits or sub-limits for the purposes of the policy. 4 His Honour erred in failing to find that the Appellants were entitled to recover, in addition to what the Respondent had already paid, the costs of engineers' certificates and council development application fees pursuant to paragraph 1 of "Clause C Additional Cover" of the policy and that such amounts were not subject to any monetary limit. 5 His Honour erred in failing to give adequate reasons as to which limit or sub-limit applied to the additional costs under Clause C so as to result in no further entitlement to the Appellants under the policy beyond what the Respondent had already paid when there was a limit of liability of $655,300 which had not been exhausted or at very least a "declared asset" of $192,000 for caravans which had not been exhausted. 6 His Honour erred in relying upon the (incorrect) fact that the words "limit of indemnity" appeared in the schedule in finding that the "declared assets" were limits or sub-limits for the purposes of the policy. 7 His Honour erred in finding that the annexes and tropical roofs that were attached to the caravans were parts of "caravans" for the purposes of the policy. 8 His Honour erred in finding that the costs of repairing the caravans (including the annexes) was subject to a monetary limit of $100,000. 9 His Honour erred in his construction of Clause E of the policy by failing to find that the Respondent had the burden of proving that hail was the only proximate cause of the loss before the clause would operate. 10 His Honour erred in failing to find that hail was not the only proximate cause of the loss." 43 The appellants' written submissions identified the following major issues as arising from the grounds of appeal: "(a) Were the annexes and/or tropical roofs to be treated as 'caravans' for the purposes of the policy or were they to be treated as individual and separate items?

(b) Did a policy limit of either $100,000 or $192,000 apply to 'caravans' (whatever they were) in relation to the kind of damage sustained to the caravans in the storm or was there only one overall limit of $655,300?

(c) Regardless of the answers to (a) and (b), were the 'additional costs' and/or the 'extra costs of reinstatement', as defined in the policy, sums that were payable without regard to any policy limit under either clause C, 'additional cover', or paragraph 5 of clause D, 'basis of settlement'?" 44 The appellants also identified subsidiary issues arising in connection with the major issues, either to assist in their resolution, or depending upon their outcome, as including: "(a) What was meant by 'property insured' and were the items listed in the Policy Schedule an exhaustive list of that property?

(b) What was meant by the 'declared assets' amounts listed in the Policy Schedule and do they constitute either limits or sub-limits?

(d) What was/were the proximate cause/s of the loss and what was the consequence thereof on the application, if relevant, of any exclusion clause?

(e) If the respondent is liable to pay more than it has to date, were the appellants under-insured so that the amount owing under the policy is to be reduced in accordance with the under-insurance clause, G2(f); (f) how did the under-insurance formula in G2 work?" 45 I have dealt with the issues by reference to the grounds of appeal. It has not been necessary, having regard to my conclusions, to resolve all the subsidiary issues. 46 The respondent filed a Notice of Contention agitating its "Other Structures" argument. It also relied on its Wayne Tank point as well as its contention that the Release referred to by the primary judge (at [18]) discharged any obligation on its part to indemnify the appellants over and above the amount of $100,000.

Consideration 47 A policy of insurance is a commercial contract and should be given a businesslike interpretation. This requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 (at [22]) per Gleeson CJ; approved in Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 (at [15]) per Gleeson CJ, McHugh, Gummow and Kirby JJ. The meaning is to be determined on an objective basis: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 (at [40]). Preference should be given to a construction which gives a congruent operation to the various components of the whole: Wilkie (at [16]). Further "where there is ambiguity in the construction of an insurance policy … particularly where that ambiguity exists in relation to an exclusion, there is a tendency to resolve the ambiguity in favour of the insured": Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541 (at 563) per Mahoney JA; see also Kirby P (at 545); Rich v CGU Insurance Limited [2005] HCA 16; (2005) 79 ALJR 856 (at [67]) per Callinan J. 48 I also note that declarations of value in commercial insurance policies, such as those in the Schedule, are used as a basis for setting premiums and settling claims and are a means of minimising under-insurance. Average clauses such as cl G also deal with the under-insurance issue by requiring the insured to share responsibility for loss if the insured property is "significantly underinsured": Kelly and Ball, Principles of Insurance Law, LexisNexis (at [12.0130]).

Were the annexes and/or tropical roofs "caravans" within the meaning of E15, or were they to be treated as individual and separate items? (Ground 7) 49 It is convenient to deal first with the question whether the annexes and tropical roofs were caught by the term "caravans" in E15.

50 Mr R Seton of Senior Counsel, who appeared for the appellants at trial and on appeal, submitted that the primary judge erred in finding that a tropical roof was part of a caravan (primary judgment paras [55], [58]) and in holding that caravans included annexes for the purpose of clause E15. He argued that a tropical roof is a fixed structure which required development approval and an engineering certificate whereas a caravan constituted living quarters on wheels capable of being transported from place to place. Analogical reasoning applied to the annexes which were fixed, rigid structures alongside which a (potentially mobile) caravan was place. He conceded that he was on stronger ground in relation to an annex than a tropical roof because an annex was capable of being a free-standing structure even if detached from the caravan, whereas a tropical roof was independent of the annex, but depended on the caravan for support.

51 He pointed out that cl E11(c) distinguished between caravans and annexes. He contended that the common usage of the word "caravan" did not connote an annex. He relied upon the Australian Design Rules for Motor Vehicles and Trailers, clause 7.1 of which defines a "caravan" as an "enclosed trailer which is intended for use as a mobile home or living quarters when parked" and also on the Macquarie Dictionary definition of "caravan" as "a vehicle in which people may live, whether temporarily or permanently, usually having two wheels and designed to be drawn by a motor car" and on the Local Government (Caravan Parks, Camping Grounds and Moveable Dwellings) Regulation 1995 which he argued treated caravans and annexes as two distinct and different items. 52 Next Mr Seton argued that if the Court was to conclude that tropical roofs and annexes did not constitute caravans for the purposes of E15, neither was an "Other Structure" so as to be subject to the declared asset sum of $15,000 in the Schedule. He observed that "Other Structures" was not a defined term. The only guidance as to its meaning was the example in the Schedule of "power heads/poles and office contents". He contended that a fixed structure such as a tropical roof or an annex would not fall within that class. 53 Accordingly, he argued that tropical roofs and annexes were subject to no policy limit other than the overall Limit of Liability for a Material Damage claim of $655,300. 54 Mr J Kelly of Senior Counsel, who appeared for the respondent at trial and on appeal, submitted the primary judge's reasoning was correct. He argued that the critical question was whether tropical roofs and annexes were parts of caravans, not whether they were caravans. He pointed out that the appellants did not challenge the factual findings which underpinned his Honour's conclusion and which related to the locus in quo. He contended that the question whether the annexes and/or tropical roofs were parts of "caravans" turned on the interpretation of the Policy, as opposed to general statements about the nature of caravans. He also criticised Mr Seton's argument that a tropical roof was a fixed structure as opposed to a caravan capable of being transported from place to place, pointing out that that argument flew in the face of the primary judge's finding that the caravans in the appellants' caravan park were permanent or semi-permanent structures.

The meaning of "caravans" in E15: consideration 55 E15, being an exclusion clause, must be construed according to its natural and ordinary meaning, read in the light of the contract as a whole, giving due weight to the context in which it appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in the case of ambiguity: Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 at 510. 56 As I earlier said, the primary judge's conclusion concerning the meaning of the word "caravans" was grounded in his findings of fact which the appellants do not challenge, and which it is convenient to recapitulate as follows: "(a) The 'annexes' and 'tropical roofs' are not separate structures: primary judgment (at [49]); (b) The 26 'caravans' at the Royal Pacific Tourist Retreat … are ' permanently installed for use by (the plaintiffs') patrons' ; each caravan has ' an annexe leading off from it and has a concrete slab floor '; and each 'caravan' is 'connected to services such as electricity' : Affidavit of Mr Caine, 1 October 2003, para 3 (underlining added). That is consistent with the 'caravans' owned by the plaintiffs being in the nature, not of a vehicle, such as a mobile home or a trailer home which is towed behind a car, but part of a permanent or semi-permanent structure which incorporates a stationary van as part of a residential unit for use by patrons of the caravan park: primary judgment (at [52]);

(c) It followed from the conclusion that the word 'caravans was used in the sense of a permanent or semi-permanent structure that all parts of and appurtenances to the structure, including annexes and tropical roofs, should be regarded as part of that structure and within the concept of 'caravans': primary judgment (at [55]);

(d) The photographic evidence showed the caravans were established as permanent or semi-permanent structures; they were stationary and built into the site. The stationary vans were elevated on Besser blocks (Mr Caine, T38.31). Some had wheels, while others' wheels had been removed (T338.34). The annexes and tropical roofs were not separate structures but were parts of the permanent or semi-permanent structures which constituted the residential units, along with other appurtenances, such as frames, walls, doors, steps and slabs; The structures were more like houses than trailers or vehicles. They were not let to be used on public roads. It was common for patrons of the Park to grow gardens growing around the vans (T39.28) The tropical roofs were 'bolted' to the van (T38.50); the annexes were attached to the vans by a roofing screw: (T39.40); primary judgment (at [56] - [57]);

(e) In the ordinary use of language, a reference to a whole includes a reference to all of its constituent parts; as a matter of ordinary language anything attached to the vans, including the tropical roofs and annexes, formed part of the caravans and - at least so long as they had not been dismantled - were embraced by that term: primary judgment (at [58]);

(f) It was a misuse of language to describe annexes and tropical roofs as anything other than a part of the relevant whole, the parts of which had to be consistently treated as such: primary judgment (at [59])." 57 In my view the primary judge's reasoning is compelling. The overwhelming conclusion to be drawn from the Policy is that it was intended to cover the "structures" which the appellants offered as accommodation. Those structures comprised the caravans, of which the tropical roofs and the annexes were a part. It is evident that a caravan in situ could not become mobile without the structure of which it was an integral component being dismantled. The caravans were let as a whole with tropical roof and annex attached. The commercial object of the Policy was to insure those structures, not their individual components. This conclusion, as his Honour found, is supported not merely by the stark absence of any separate reference in the Schedule to the tropical roofs or the annexes, but also by his Honour's factual findings concerning the nature of the structures themself. 58 This raises the question whether the items listed in the Policy Schedule were an exhaustive list of the Property Insured. In my view it was. 59 The general insuring clause made the respondent's liability to indemnify the appellants subject to the terms and conditions of the Policy and the specified sections of the Schedule, provided that its liability was not to exceed, inter alia, the Sum Insured or any specific sub-limits in the Schedule or any specified Section of the Policy. 60 The extent of cover clause in Section 1 provided that the respondent would, inter alia, indemnify the appellants "up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule". The Schedule both set out the details of the appellants' cover (see definition of "Schedule" in the General Definitions) and represented the appellant's declaration of the value of the "Property Insured". Although the definition of the latter concept was broad, it was refined in relation to the particular risk by the requirement that the appellants declare the value of the "Property Insured" at each Situation, calculated in accordance with the Basis of Settlement clause. 61 Thus the enumeration of property and values in the Schedule under the heading "Material Damage Declared Assets" represented, in my view, the appellants' identification of the property at the caravan park which they had insured for material damage. The identification of "caravans" in the Schedule without reference to the tropical roofs or annexes demonstrated objectively that those three structures were regarded as constituting a "caravan" for the purposes of the listing "Caravans Indemnity". This conclusion is reinforced by the enumeration of other items of property in the Schedule such as machinery (including hose reels), barbecues, pergolas, washers and dryers. A Schedule which descends to that level of particularity cannot sensibly be understood to have excluded what on the appellants' case were the most substantial items of property at the caravan park. 62 Accordingly, in my view an objective interpretation compels the conclusion that the list of "declared assets" in the Schedule was intended to comprehend all the major items of property at the caravan park and that the reference to "caravans" both in the Schedule and E15 was intended to encompass the entire structure. 63 Mr Seton's submissions, in my view, tended to focus on the hypothetical rather than the reality of the structures at the caravan park. Thus he prayed in aid the Local Government (Caravan Parks, Camping Grounds and Moveable Dwellings) Regulation 1995 which he argued clearly distinguished between caravans and annexes. He also submitted that caravans could be distinguished from annexes and tropical roofs because the former were self-supporting structures which could stand in the event a caravan was driven away, while the latter would have to be removed if a caravan was driven away. 64 However the requirements of the Regulation cannot, in my view, govern the interpretation of a Policy intended to apply to the particular caravan park and the risks to which the Policy responded. Nor, to take another example alluded to in the course of argument, can the fact that the Residential Parks Act 1998, which applies to caravan parks, contemplates that structures within such parks, including manufactured homes (which are referred to in E14), are moveable dwellings: see s 3 and PricewaterhouseCoopers Legal v Perpetual Trustees Victoria Limited [2007] NSWCA 271 (at [77]) per Ipp JA (Giles JA and McClellan CJ at CL agreeing). 65 Further, hypothetical possibilities about what would happen if the caravans were dismantled cannot displace the primary judge's factual findings about the nature of the structures in situ. The interpretation of the Policy, as I have said, must be undertaken in the light of the commercial circumstances it addressed, and the objects which it was intended to secure. It was intended to cover a caravan park in which the caravans were constructed as permanent or semi-permanent structures, each with a tropical roof and an annex attached and which were let on a virtually permanent basis to residents of the park.

66 The reference to a caravan annex in E11(c) does not detract from this conclusion. In my view E11(c) was intended to make it clear cl E did not apply if an annex was "built of sail material" and if the damage was caused by storm etc. Although there is a comma between "caravan and cabin annexes" and "and shelters built of sail material", the fact that the latter phrase is intended to qualify all that precedes it is apparent from the special excess sub-clause referring to "textile or fabric annex or sail material shelter". Thus the Policy recognised that annexes and shelters may be constructed of vulnerable materials and singled them out as exempt from the general exclusions in cl E in the circumstances set out in E11(c), even if they were annexes to a cabin or a caravan. It was the nature of the material from which they were constructed, which led to their special treatment.

67 Their separate treatment in that limited context does not preclude the finding that in the context of the Policy an annex was part of a caravan for the purposes of E15. Exclusion clauses need not be consistent with each other. Each has to be construed on its own terms. 68 In the course of argument it emerged that four of the annexes were of aluminium foam sandwich construction. This raised the possibility whether even if they were part of the caravans, E15 which, it will be recalled, extended to "Caravans and all aluminium foam sandwich construction", provided separate cover for them. In my view that momentarily alluring thought should be rejected. Whether or not the effect of E15 was to provide cover for caravans and any part of them which was of aluminium foam sandwich construction, recovery was capped at $100,000, the amount which has been paid. 69 Ground 7 should be rejected.

The cause of the damage (grounds 8, 9 and 10) 70 The effect of the conclusion that the caravans included the annexes and tropical roofs was that if, as the primary judge found, the proximate cause of the damage was hail, then, subject to one matter to which I will come, the appellants' recovery in respect of the damage to the caravans was limited to $100,000: E15. 71 Mr Seton's primary submission in relation to these grounds of appeal was that the statement in the Agreed Facts that the damage to the caravans and annexes was caused by "storm including hail and torrential rain" conclusively determined the issue of the proximate cause of the damage. He argued that the Agreed Facts disclosed at least two proximate causes of the damage, torrential rain and hail, and that it was not possible to single out hail as the "sole proximate cause". He contended that the evidence also supported the conclusion that the damage was caused by a storm which included wind, rain and hail. 72 Mr Seton did not take the Court to the detail of the evidence concerning how the caravans were damaged. He submitted that, in essence, rain got in either through open hatches, broken windows or split seams or pitted walls. While he conceded it was the hail that created holes in the caravans through which water could penetrate, he argued that it was the driving force of the wind that enabled the hail to travel horizontally and at a velocity sufficient to cause that penetration. Accordingly each of the wind, rain and hail was a proximate cause of the damage, so that E15 did not apply. 73 At the heel of the hunt Mr Seton sought to rely on a letter from the respondent to a loss adjuster dealing, inter alia, with whether the Policy covered damage to broken windows and resultant water damage and which potentially raised a construction of E15 different from that advanced at trial or in his written submissions on appeal. He also sought to raise, rather faintly I thought, an argument that the water damage to the caravans was caused by it entering through the hatches in the caravans under the tropical roofs. Neither of these arguments had been relied upon before the primary judge. Each involved factual issues which could have led to the respondent conducting its case differently at trial. The appellants cannot raise them for the first time on appeal. 74 Finally Mr Seton submitted the respondent bore the onus of proving that the damage was caused by hail alone and had failed to discharge that onus.

75 Mr Kelly submitted that the Agreed Facts did not constitute an agreement on the question of proximate cause which he argued was a question of mixed fact and law which fell to be determined in the light of the evidence as a whole and the terms of the Policy. He argued that in order to determine whether the proximate cause of the damage was hail, the primary judge had to determine the manner in which hail interacted with the fabric of the structure and caused water to enter. He contended that, based on the first appellant's evidence, (primary judgment at [91]) the primary judge was correct to conclude that hail was the proximate cause of the damage. He also disputed the appellants' submission that where there were multiple proximate causes, E15 did not apply. He argued that where a number of causes operated at the one time, each had to be examined to ascertain the active, efficient cause that set the relevant train of events in motion.

Causation: consideration 76 In considering the proximate cause of loss in the insurance context, the Court has regard to the reality, predominance and efficiency of a cause, rather than proximity in time: HIH Casualty & General Insurance Limited v Waterwell Shipping (at 608) per Sheller JA (Beazley and Stein JJA agreeing); see generally Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66 (at [39]ff) per McColl JA (Ipp and Tobias JJA agreeing). The Court applies common sense standards in determining what is the proximate cause, approaching the question by reference to the understanding of "the man in the street, and not as either the scientist or the metaphysician, would understand it": Lasermax (at [109] - [110]). 77 The respondent bore the onus of proving that E15 applied: Trickett v Queensland Insurance Co Ltd [1936] AC 159 (at 164); see also Provincial Insurance (at 545) per Kirby P; State Government Insurance Commission v Lane (1997) 68 SASR 257 (at 260) per Debelle J (Cox and Millhouse JJ agreeing). 78 In my view the primary judge's conclusion (at [84]) that the reference to "hail" in E15 meant damaged by hail in the sense that hail was the proximate cause of the damage was correct. Damage which was caused by hail, without, at least, elements of a storm coinciding, would be a meteorological anomaly. In other words, the Policy was looking at the situation where hail fell as part of a storm but, in the circumstances, was the proximate cause of the damage. 79 The primary judge concluded that hail was the proximate cause of the damage and, accordingly, sub silentio, held the respondent had discharged its burden of proof in this respect. 80 His Honour did not regard the Agreed Facts as determining the issue of proximate cause. As his Honour observed (at [78]), Mr Seton approbated and reprobated on this question, at times asserting the Agreed Facts were binding, and at others accepting the court should determine the issue on the basis of the evidence. Mr Seton did not challenge his Honour's assessment of the conduct of the trial in this respect. I would also agree with his Honour "that the agreed facts [paragraphs xii and xiv] are imprecise in failing to identify precisely how damage was caused in the ways suggested" and that it was necessary to look at the evidence to determine the proximate cause issue: primary judgment (at [79]) - [80]). 81 His Honour found (at [89]) that the sequence of events required to attract the operation of E15, and, therefore, the limit of $100,000 that clause prescribed, involved "(1) 'Damage to … Caravans (etc) … by hail'; (2) … the hail (penetrating) the entire thickness of the material damaged; (3) causing water to enter." He concluded that sequence was established by the following evidence: "91 In paragraph 6 of his affidavit sworn on 1 October 2003, Mr Caine says: 'On 16/1/02 a severe hailstorm struck Chinderah and caused severe damage to our business including hail damage to our caravans and their annexes'. In paragraph 14 of his affidavit sworn on 8 October 2004, he says:

'… all of the vans were severely pitted on their external sheeting and some had the sheeting actually torn. Water penetrated into every caravan whether through the torn portion of the aluminium sheeting, the tiny pit holes that were caused by the hailstones, the seams of the sheeting that were evidently stretched by the excessive pitting or the hatches in the roofs. Damage was also caused to every caravan through the hail breaking the glass, splitting and opening seams and causing hairline fractures to the caravans' linings. All the annexes and their attached Vans were similarly damaged and left non waterproof after the storm…' The photographs in evidence prove the same point.

92 Mr Caine gave evidence that some of the hailstones were 'as big as house bricks' (T44.12); he saw other hailstones of 'all shapes and sizes' (T44.41); the rain and hail travelled almost horizontally because of the ferocity of the storm (Para 9, affidavit of 8 October 2004 &T44.35); and the hailstorm was of such ferocity that hailstones came through one window of the residence, travelled across the room and reached the opposite wall (T43.32). The intensity was such as to tear away some of the sheeting on the caravan walls (T42.5); the hail dented the walls of the caravans, leaving little pin-holes in those walls (T42.10); and the windows of the vans were smashed (T42.24). The vans were 'all penetrated to some degree' (T42.); some four inches of rain fell in ten minutes (T44.45); and, in the result, 'All the vans were left uninhabitable due to water ingress' (Para 15, affidavit of 8 October 2004).

93 It is true to say that damage was caused to the caravans by storm including hail and torrential rain, as per paragraph 12 of the Agreed Facts. That is precisely what happened. But it is not inconsistent with hail being the proximate cause of the damage. Proximate cause is a concept which requires an assessment of the qualities of reality, predominance and efficiency in circumstances in which a number of factors contribute to the happening of the damage in question: HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc (1998) 43 NSWLR 601 at 608.

94 In the present case, damage was occasioned to the caravans in a manner in which a storm took place, including hail and torrential rain; the hail penetrated the materials from which the caravans were constructed; the entire thickness of the walls and windows of the caravans was penetrated by the hail when holes of various sizes and descriptions were made, and the physical integrity of the structure was thereby breached, allowing water, in the form of rain and the hail itself, to enter the caravans. In that way, the hail was the active, efficient cause of the damage. It set the relevant train of events in motion, in the common sense way in which proximate cause must be ascertained. As earlier submitted, the undisputed facts afford a paradigm example of the mechanism of loss contemplated by the policy.

95 It is not correct to say that two concurrent causes, properly so-called, were involved. In that regard, the reasoning of the Court of Appeal in Petersen & Shadomill Pty Ltd v Union des Assurances de Paris IARD (1997) 9 ANZ Ins Cases ¶61-366 is instructive. In that case, the evidence disclosed two concurrent causes properly so called: flood water from drains (which was covered by the policy) and flood water not from drains (which was excluded). Priestley JA, with whom Mason P & Powell JA agreed, dismissed the insured's appeal from the decision of Rolfe J in favour of the insurer, on the basis that, general flooding intermingled with flooding from drains did not come within the exception to the flood exclusion, therefore the exclusion did not apply. Secondly, the court held that the general flooding was the dominant cause because the torrent of rain was such that the general flooding would have happened whether the drains had been there or not.

96 In the present case, it is true that high winds were driving the hail but that is not a concurrent cause of the damage by hail. The presence of high winds is a necessary condition, without which the damage by hail would not have occurred, but that is not the same as a concurrent cause. The caravans did not blow away. If damage had been done by the wind blowing the caravans off their supports and tumbling them over, the proximate cause of the damage would be the wind. If the caravans were at the same time pounded by hailstones and penetrated in the manner required by E15, each of which damaged the caravans, two concurrent causes may be said to operate, wind and hail, but that is not this case. If all that happened was wind and rain, the damage in question would not have occurred. In that way, Petersen is distinguishable on its facts; the exception in the exclusion is invoked; and the limit applies. Indeed, if the plaintiffs are correct in their contention that the storm itself, including high winds and the torrential rain, were concurrent causes, properly so-called, Petersen should have been decided in the opposite way because the flood waters in question in that case were all occasioned by torrential rain.

97 It is no answer to contend that the opening words of E15 are confined to hail, as distinct from 'wind, rainwater or hail'. The clause does not purport to exclude cover for wind or rainwater. If the caravans had blown away and broken themselves up as they tumbled over, the loss would be covered. If rainwater alone had caused the loss, by for example, entering an open door, that too would be covered. But that is not what happened. The mechanism of the loss was damage by hail and the clause is therefore engaged. 98 In the present case, there is an abundance of evidence that the effective, or dominant or operative cause of damage to the caravans, including the annexes and tropical roofs, was hail.

99 It is no answer that the hail fell during a storm which also involved torrential rain and high winds. Hailstorms almost always involve rain and wind. The policy singles out hail and specifically excludes cover for that risk, except in the circumstance in which the hail penetrates the entire thickness of the damaged matter, whereupon the $100,000 limit applies." 82 This analysis of the evidence compellingly demonstrates, in my view, that it was the penetration of the hail into, or through, the various fabrics of which the caravans (including the tropical roofs and annexes) were constructed which was the proximate cause of the damage to the caravans. Indeed Mr Seton did not really challenge the proposition that hail was a proximate cause of the damage. Rather, he argued that it was but one of several proximate causes, the others being the wind and the rain. In my view Mr Seton did not establish error in the primary judge's analysis of the evidence and his conclusion on proximate cause. 83 However, assuming Mr Seton is correct and the proximate cause of the damage was the concurrence of wind, rain and hail then, in my view, the principle the respondent invokes in its Notice of Contention that where there are two causes, one covered and the other excluded, the insurer is not liable, would arguably exclude the appellants from recovering: see Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp Ltd; HIH Casualty & General Insurance Ltd v Waterwell Shipping Incorp (at 610). 84 The Wayne Tank principle was recently considered by Allsop J (with whom Kiefel and Stone JJ agreed) in McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; (2007) 157 FCR 402 (at [80] ff). His Honour explained (at [93]) that the principle comes into play where there are "two proximate causes which are concurrent and interdependent, in the sense that neither would have caused the loss without the other … the two causes can be seen as inseparable and so, in effect, as joint". After analysing the cases considered in Wayne Tank, texts and later cases, his Honour concluded: "109 In these cases, even though it could be posited that the damage may or would have occurred in any event by the cause that was not excluded, the fact is that the policy in each case was construed as excluding damage caused in a particular way. As a matter of fact the damage was caused in that way (whether or not there was another concurrent cause). Thus, recognising the limits of the cover agreed upon, the loss fell outside the terms of the policy. Wayne Tank has become the best known illustration of this result. But the result is not the consequence of the application of a principle other than that which truly underlay Wayne Tank - the ascertainment and application of the contractual intentions of the parties." (emphasis added) 85 I have already set out the definition of "Damage" which would clearly extend to damage caused by wind and rainwater. It was not suggested that E14 was a relevant exclusion. This was, therefore, a Policy in which cover was provided for damage caused by wind and rainwater, but excluded (save in restricted circumstances) for damage caused by hail. Mr Seton submitted that Wayne Tank did not apply because there were probably three or four proximate causes. I do not understand the Wayne Tank principle to be constrained by the number of proximate causes. Rather, it applies wherever there is more than one concurrent and interdependent proximate cause, one or more of which is covered, while one (or possibly more) is excluded. In such cases the court construes the parties' intention to have been that the loss will not be covered. In the present case, on Mr Seton's argument, the forces of the storm, the wind, hail and rain were interdependent proximate causes. That attracts the operation of the Wayne Tank principle.

86 Thus, even if Mr Seton's argument is correct and the concurrent and interdependent forces of the storm, the wind, rain and hail, were proximate causes of the damage, the appellants could not recover more than they have because cover for hail damage was prima facie excluded. Cover was provided if, as the primary judge found occurred in this case, the hail penetrated the entire thickness of the material damaged, causing water to enter, in which case the respondent's liability was limited to $100,000: E15. 87 It is unnecessary to reach a final conclusion on this point. There may be an argument as to whether Wayne Tank applies because E15 was a hybrid of an exclusion clause and one limiting liability. This was not argued and should be left for determination to an occasion where it is a live issue. 88 Grounds 8, 9 and 10 should be rejected. Extra costs of reinstatement: D5 (grounds 1 and 2) 89 Mr Seton submitted that on the proper construction of D5 the appellants were entitled to recover, in addition to the sum of $100,000 the respondent had paid, extra costs of reinstatement and that the amount they were entitled to recover under this head was not subject to any monetary limit. He also complained the primary judge's reasons were inadequate because he did not deal with the D5 issue. 90 Mr Kelly accepted that the primary judge did not deal directly with D5, but argued that his judgment (at para [102]) exhibited the relevant reasoning and his omission could be seen as a slip at the end of a complex judgment which had no bearing on the final outcome. 91 Mr Seton submitted that even if paragraph [102] could be read as referring to D5, the primary judge had wrongly applied the $100,000 limit in E15 to the extra costs of reinstatement covered by D5. He argued that the Policy did not limit amounts recoverable under cl D5, pointing out that: (a) the Schedule did not refer to any limit/sub-limit of recovery under Clause D; (b) the Schedule made no reference to costs of reinstatement; (c) while D3 set out the Basis of Settlement, D5 referred to the insurer "also" paying the "extra" cost of reinstatement which were costs incurred by the appellants in complying with the requirements of any statute or regulation or of any municipal or statutory authority; accordingly these payments were additional to payments covered by D3; (d) the last sentence in D5(c) contemplated that the Policy may provide no limit of liability for damaged property or that there may be no relevant Sub-Limit of Liability, in which case the insurer's liability was restricted to the actual extra costs; (e) the fact that G2, the average/under-insurance clause, did not apply to amounts recoverable under D5 supported the contention that any extra costs of reinstatement was not part of the overall limit of liability of $655,300 or any of the Declared Asset figures. He argued it made no sense to treat the extra cost of reinstatement as being outside the overall limit of liability for one purpose and as forming part of a limit/sub-limit for other purposes; and (f) to treat the "Declared Assets" figures in the policy schedule as a limit or sub-limit that applied to the costs of reinstatement was an erroneous treatment of the declared assets as an exhaustive list of all items to be insured ignoring other items (including the costs of reinstatement) and to ignore the definition of "property insured" which is not tied to/limited by the list of items/amounts in the Schedule. 92 I have already substantially rejected argument (f), but not for reasons which affect the implications of the omission of extra costs of reinstatement from the Schedule. However it is relevant to note in this regard that for the purposes of G2, declared values at any Situation did not include "any allowance for the Extra Cost of Reinstatement referred to in Clause D5, or for the costs and expenses referred to in the Additional Cover provided in Clauses C1.(b), C1.(c) and C2": G2(2)(d).

93 Mr Kelly submitted that the correct approach to the question whether the limit in E15 applied to extra costs of reinstatement was to apply the insuring words of the Policy under which the respondent agreed to indemnify the appellants "subject to the terms and conditions of the policy". E15, he contended, was a term of the Policy, hence the limit of $100,000 applied to any extra cost of reinstatement, as it did to any other component cost. Such costs were payable to the limit of the indemnity specified for the particular loss or damage. He argued that D5 gave an extended meaning to reinstatement value in D1 so that it included the costs referred to in D5, but subject to any limit, such as that in E15, which otherwise applied.

94 Mr Kelly also argued that D3, the Basis of Settlement clause, was not an insuring clause and did not affect the extent of cover under the Policy or the limit of any liability of the insurer to pay. He contended that the words "we shall also pay the extra cost of reinstatement" in D5 did not create a payment obligation. He submitted that once it was appreciated that the Basis of Settlement provision dealt with how a loss was to be calculated, rather than defining the cover and any limits that may cap the insurer's obligation to indemnify, the D5 point fell away. 95 Next Mr Kelly argued that it was irrelevant that the last sentence of D5 contemplated that the Policy may not provide a limit for damaged property, pointing out that E15 did contain such a limit. He submitted it was equally irrelevant that G2 did not apply to D5 costs. He contended that extra costs of reinstatement ordinarily arose by reason of legislative prescription as to building requirements, did not add "real value" and that it would be inappropriate that they be included in the under-insurance provisions of the Policy. 96 Finally Mr Kelly submitted that the question whether the list of declared assets was exhaustive or not was beside the point. He observed that the extra costs of reinstatement were not an "item insured", but was an amount to be included in a calculation of loss and was payable if it was incurred in the conditions prescribed in D5.

The construction of D5: consideration 97 The primary judge identified as questions for determination whether the limits of indemnity under the policy, including the $100,000 in E15, applied to any Extra Cost of Reinstatement under D5, as well as what limits, if any, applied in relation to additional costs under C and/or annexes and tropical roofs, if they were not caravans: primary judgment (at 13 and (c1)]. Paragraph [102] of the judgment does not deal with D5 but with the separate issue of the meaning of Additional Cover under C. Thus his Honour failed to deal with the D5 argument.

98 To understand the notion of indemnity and its extent one goes to the insuring clause: McCarthy v St Paul International Insurance Co Ltd (at [68]). It will be recalled that under the general insuring clause, the respondent agreed to indemnify the appellants "subject to the terms and conditions of the Policy, and the specified Sections in the Schedule of the Policy". Its liability was limited to the Sum Insured or any specific sub-limit in the Schedule or any specified Section of the Policy. Pursuant to the extent of cover clause, the respondent agreed to indemnify the appellants against "Damage occurring to Property Insured during the Period of Insurance" and to "provide the additional cover referred to in Clause C up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule. The extent of cover clause was subject, relevantly, to the amount of the indemnity being calculated in accordance with the Basis of Settlement Clause D.

99 Under D1 the respondent agreed that the Basis of Settlement should be Reinstatement Value and that D4 - D8 applied. D4 permitted replacement etc to be carried out on another site without increasing the respondent's liability, and other matters relating to when the work should commence, the respondent's liability in the event of partial damage and when payment fell due. D6 dealt with the Basis of Settlement for equipment etc having a measurable output, D7 dealt with calculating the amount payable where reinstatement was limited by a requirement reducing the floor space ration index, while D8 dealt with the consequences of the foundations of a destroyed building being undamaged. Thus each of D4, D6, D7 and D8 dealt with a method of calculating the amount the appellants were to be paid within the concept of "Reinstatement Value" in D3. 100 D5 has some features of these clauses, in that D5(c) sets out a method of calculating the payment where "the cost of reinstatement of Damaged Property Insured is less than 50% of the cost of reinstatement if such property had been totally destroyed". However the prefatory words, "[w]e will also pay the extra cost of reinstatement…" bear the hallmarks of an insuring clause, bringing to mind Giles JA's observation that "typically of an insurance policy, the basis of settlement clause is not well framed and does not fit well with the preceding provisions": General Accident Insurance Asia Ltd v Sakr [2001] NSWCA 402 (at [51]).

101 D5 is clearly not an insuring clause. It is nevertheless a term of the Policy and resides within the clause which sets the parameters for calculating the measure of the respondent's liability to indemnify the appellants against "Damage occurring to the Property Insured". Its express purpose was to provide that in addition to the amount necessary to reinstate the Property Insured, the Policy also responded to the "extra cost of reinstatement" being amounts "necessarily incurred by [the appellants] to comply with the requirements of any statute or regulation or of any municipal or statutory authority". 102 That amount was not, in my view, limited by the cap of $100,000 in E15. The amount in E15 was a Limit of Liability which, by virtue of the definition in cl A, was an amount which had to be found in the Schedule. The Policy expressly did not require the appellants to estimate D5 costs. A Limit of Liability only became relevant if D5(c) applied, because that sub-clause limited the recovery of D5 costs in the events there set out to either actual or extra costs of a relevant Sub-Limit of Liability in the Schedule, whichever was the lesser. The express reference to Sub-Limits of Liability in D5(c) is a powerful indication that Limits/Sub-Limits of Liability otherwise played no part in the operation of D5. 103 The significance of D5 costs not forming part of a Limit of Liability in the Schedule is that they are not capped by any such Limit. The same conclusion follows assuming the primary judge was correct in concluding the amount in E15 was also a Limit of Liability even though not found in the Schedule, a point it is unnecessary to decide. 104 Grounds 1 and 2 should be upheld.

The construction of the Schedule and Clause C (Grounds 4 and 5) 105 The primary judge found (at [45]) that the costs covered by Clause C were payable up to the limits referred to in the Schedule. However he also concluded (at [102]) that the $100,000 limit in E15 represented a "specific sub limit contained in …[a] specified Section of the Policy" within the meaning of the general insuring clause, and thus capped the amount the appellants could recover by way of Additional Cover. 106 Mr Seton submitted that this was an error. He argued that the express reference to Additional Cover costs in the extent of cover clause made it clear that Additional Cover costs were not caught by the E15 limit. He also contended that E15 was an exclusion clause and was not, accordingly, a "specified Section of the Policy covering that particular loss, damage or liability" within meaning of the general insuring clause. Alternatively he argued that E15 only limited recovery for "Damage" to caravans, whereas cl C covered costs "additional" to amounts recoupable for "Damage". Accordingly he contended the Additional Cover costs were either limited only by the overall amount of $655,300 or by the caravans indemnity of $192,000. 107 Mr Kelly's written and oral submissions did not directly address this issue but I infer that he supported the primary judge's reasoning in [102].

The construction of the Schedule and Clause C: consideration 108 In my view the primary judge's conclusion about cl C was correct, albeit that my reasons depart from the approach his Honour took.

109 An Additional Cover clause such as C is an automatic extension to the Policy which operates in addition to the main cover: Kelly and Ball (at [12.0060]). So much is apparent from the extent of cover clause which I repeat for convenience: "We will indemnify you against Damage occurring to Property Insured during the Period of Insurance and shall provide the additional cover referred to in Clause C up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule , but subject to: … 2. the Limit(s) and Sub-Limits referred to in the Schedule… … 4. the exclusion of certain items of property as referred to in Clause E…." (emphasis added) 110 However the statement that an Additional Cover clause operates "in addition to the main cover" is a general statement, which must succumb to the express terms of any policy. In the present case, the Additional Cover costs are capped by the Limit(s) of Liability in the Schedule (B2) and their recovery is subject to the exclusions in E (B4). 111 The introductory words to cl C should also be recalled. They provided that the Additional Cover was attracted: " If Damage to Property Insured occurs in circumstances giving rise to indemnity under Section 1 of this Policy , We will also pay the following additional costs …" (emphasis added) 112 Thus recovery of additional costs was contingent on the respondent being liable to indemnify the appellants under Section 1. Thus in order to determine the extent to which the appellants could recover cl C costs, it is necessary to determine the circumstances in which they were entitled to the indemnity under the Policy. 113 The combined effect of the extent of cover clause and cl C can be illustrated by a simple example. Assume the caravans had been damaged by rain and a relevant statutory requirement dealing with cyclone rating had not been complied with so that E14 applied and the insured could not recover anything in respect of that damage. The Damage to the Property Insured would not have occurred in circumstances giving rise to indemnity under Section 1 so the pre-condition to Additional Cover liability would not exist. Such costs could only be recovered, in other words, if there was a principal head of recovery to which the Policy responded in respect of which the cl C costs would be an "additional" amount. In such circumstances any Limit of Liability in the Schedule would have no work to do because the operation of the E14 meant the damage to the caravans was not covered and, correspondingly, there was no head of recovery on which the Additional Cover costs could piggyback. 114 Applying the same reasoning one finds that the appellants' entitlement to indemnity for the caravans, while prima facie within the extent of cover clause in cl B, was caught by B4 which made the insuring clause subject to cl E. Thus the circumstances which gave rise to indemnity under Section 1 were found in E15 under which their recovery for the caravans was capped at $100,000 because the damage was caused by hail which penetrated the entire thickness of the material damaged. As E15 provided the framework for the respondent's liability to indemnify the appellants under the Policy for caravans damage, there is no relevant Limit of Liability in the Schedule. 115 If Mr Seton's argument was correct then the appellants could recover more than the maximum amount the respondent is liable to pay for the caravans damage, even though the clear intention of the Policy is that the Additional Cover costs be capped by the Limit of Liability, or any relevant exclusion, applicable to that insured Property. The anomaly of such an outcome tells strongly against his argument. 116 Grounds 4 and 5 should be rejected.

Other grounds 117 Having regard to the conclusions I have reached, it is unnecessary to deal with Grounds 3 and 6.

Notice of contention 118 In the light of the decisions I have reached on the appeal, it is also unnecessary to deal with Ground 1 (Other Structures/averaging) of the Notice of Contention. I have already indicated my views on Ground 3 of that document, the Wayne Tank argument. 119 It is not entirely clear whether the respondent relies on Ground 2 in defeasance of the D5 claim. Ground 2 relies on the operation of a Release dated 2 October 2002 as having released any liability to further indemnify the appellants in relation to the caravans. However as the point can, in my view, be disposed of shortly I shall address it. 120 On 10 July 2002 the respondent sent the appellants a letter setting out its view as to its liability under the Policy. At that stage it was disputing liability on the basis the damage to the caravans was caused by hail which had not penetrated the caravans. In about October 2002 the respondent sent the appellants a release. Mr Caine altered the amount set out in the document to one which he thought represented the amount a loss assessor had estimated and appears to have dated it 2 October 2002. The release was expressed to be subject to acceptance by the insurer. On 10 October the appellants' solicitor wrote to the respondent advising the "offer of settlement made recently is not acceptable". The next day the respondent replied re-affirming that its letter of 10 July outlined its position. On 6 February 2003 the respondent wrote to the appellants accepting it had to indemnify them in the amount of $100,000, an amount it paid the next day. 121 At that stage the appellants were unaware of the extra costs of reinstatement. That amount only came to the appellants' attention when they received a letter from Tweed Shire Council dated 28 May 2003. 122 The parties advanced numerous arguments about the application of the Release. It is unnecessary to deal with them. The Release is inapplicable because deeds of compromise of ascertained specific questions are not construed "so as to deprive any party thereto of any right not then in dispute and not in contemplation by any of the parties to such deed": Cloutte v Storey [1911] 1 Ch 18 (at 34) applied in Grant v John Grant & Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112 (at 127 - 128) per Dixon CJ, Fullagar, Kitto and Taylor JJ. As the extra costs of reinstatement were not in the parties' contemplation at the time the Release was executed, they cannot be caught by it.

Interest 123 The appellants also submitted that it was unreasonable for the respondent not to make any of the above payments by January 2003. They claimed interest on whatever sum the Court allowed at 11% per annum from 16 January 2003 to the date of judgment pursuant to s 57 of the Insurance Contracts Act (Cth). The respondent's written submissions did not address this issue. Neither party addressed it in oral submissions.

124 An insurer which is liable to pay a person an amount under a contract of insurance is also liable to pay interest on the amount to that person in accordance with s 57 for the period commencing on the day from which it was unreasonable for the insurer to have withheld payment of the amount and ending on, relevantly, the day on which the payment is made. The interest is payable at the rate applicable in accordance with s 57(3). 125 The respondent paid the appellants the $100,000 on 7 February 2003 (Agreed Fact (xxv)), the day after it wrote to the appellants accepting it had to indemnify them in that amount. The appellant's written submissions do not explain why they selected 16 January 2003 for the purposes of s 57. The only significance of that date that I can discern is that it is a year after the storm. 126 In my view, however, it was unreasonable for the respondent to have withheld payment of the extra costs of reinstatement as at the date it accepted liability for the $100,000. The appellants are, therefore, entitled to interest at the s 57 rate on the extra costs of reinstatement from 7 February 2003.

Orders 127 The appellant has been partially successful on appeal and on what might fairly be regarded as a more minor aspect of their claim. It is not appropriate in my view that they recover all the costs of appeal, nor of the trial. The amount claimed for extra costs of reinstatement was $72,808 as opposed to more than $400,000 for the caravans damage depending on whether or not averaging applied. Although strict numerical comparisons can be odious, in this case they substantially reflect the amount of time devoted to the respective issues. Having regard to the amount of time devoted to the extra costs of reinstatement issue, in my view the respondent should pay one-third of the appellants' costs of the appeal and trial and the appellants should pay two-thirds of the respondent's cost of the trial and of the appeal. 128 I propose the following orders:

(a) Appeal allowed in part. (b) Judgment entered in favour of the respondent on 5 May 2006 set aside.

(c) In lieu thereof declare that the appellants are entitled to recover the extra costs of reinstatement pursuant to cl D5 of the Policy and interest on that amount pursuant to s 57 of the Insurance Contracts Act (Cth) from 7 February 2003. (d) Summons otherwise dismissed.

(e) As to costs: (i) Respondent to pay one-third of the appellants' costs of the appeal and trial, and (ii) Appellants to pay two-thirds of the respondent's cost of the trial and of the appeal, such costs to be set off against each other (f) Parties to file Short Minutes of Order in the Registry within fourteen days reflecting these reasons. 129 McCLELLAN CJ at CL: I agree with McColl JA. **********

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